GM IPO to raise record cash

By Chris Isidore, senior writerNovember 17, 2010: 10:04 AM ET

NEW YORK (CNNMoney.com) -- General Motors - with strong investor demand - increased the size of its planned initial public offering by nearly a third, bringing the total it could raise to as much as $20.4 billion, which would be the largest first day stock sale on record.

Most of the additional shares being sold Thursday will come from the U.S. Treasury's current majority stake, and will net at least $11.5 billion for taxpayers, up from original plans to recoup as little as $4 billion.

Treasury received 60.8% of the company's common shares in return for last year's $50 billion bailout that was needed to see the company through its bankruptcy process. After the sale, the government's stake will fall to only a third of the company, although it will still be the largest shareholder.

The larger sale by Treasury reduces the taxpayer's risk to a drop in GM share price. But it also gives taxpayers less upside if shares rise in value, making it more difficult for the government to get back all of the bailout.

Between the repayment of loans, the repurchase of preferred shares held by Treasury and the IPO, GM will have repaid nearly $22 billion of the bailout. Whether taxpayers get the remaining $28 billion will be determined by the price GM gets on the sale of remaining shares. Share price would have to rise more than 70% before the subsquent sales for the government to break even.

The share sale planned to start Thursday will include $4.6 billion in preferred shares, and 478 million common shares, which are estimated to be priced between $32 and $33 a share. A final price for the shares will be set Wednesday evening.

At the lower end of the price range, GM would be selling $19.9 billion in common and preferred shares.

According to Renaissance Capital, a investment firm that specializes in IPO, the largest IPO in history was the $19.2 billion raised in Hong Kong by the Agricultural Bank of China in July. The largest U.S. IPO was the $17.9 billion raised by Visa in March of 2008.

Matt Therian, research analyst with Renaissance Capital, said GM's offering may not end up topping its rankings because it typically does not include preferred shares in the totals. But GM is selling an unusually large number of preferred shares in its IPO, so he said it would probably be highlighted in a footnote.

Counting only $15.8 billion in common share sales would still make the GM IPO the third largest U.S. offering on record, and the seventh largest in the world.

The increase in the number of shares sold is just the latest indication of investor hunger for GM shares. Tuesday it raised its IPO target price to between $32 and $33 a share, from the initial estimate of $26 to $29.

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